Dong, I recently left my job at the State, and am now self-employed. Because I was getting full benefits before, I didn’t pay much attention to my health insurance. Now that I’m paying for it out of pocket (through COBRA, for the time being), however, I am more interested in coverage, premiums, copays, providers, etc. What should I look for in selecting coverage?

Noah S.

Health insurance is something many of us don’t think about enough. We either think we can’t afford it or we have it through group plan with our employer. COBRA effectively extends the group coverage that you had with your previous employer for up to 18 months after separation. Group policy are always more cost effective than individual policies. If you are eligible to join a group policy via a trade organization, or other affiliation, you should at least explore that before looking for an individual policy.

First off buying individual health insurance is costly endeavor that can total hundred per month.

The basic principles of Health Insurance are the following:
1) Deductible - What you need to pay out of pocket every year before the insurance kicks in
2) Copay - What percentage do you still have to pay after the insurance has kicked in
3) Stop Loss (Max out of pocket) - What dollar amount you stop paying your copayment
4) Maximum Benefit - The total amount that the insurance is willing to pay

The first three characteristics are where you can really make choices to either reduce or increase your premium. The maximum benefit should be at high level (in the millions) regardless of what level you decide on the other characteristics. The higher the copay, deductible, and stop-loss, the lower the premium. Choose a level that you are comfortable with paying out of pocket with cash that you have at hand. Managed care plans such as HMOs and PPOs effectively mask these underlying costs.

As for choices in plans there are basically two types, indemnity and managed care. An indemnity plan is classic insurance with a deductibles, copayments, and free choice. HMO, PPO and POS are considered managed care plans. In these plans a visit to the doctor will only cost a standard copayment of something like $20. In addition a yearly physical and other features may be included in the cost of the plan. The primary doctor is intended to manage your care by providing just the right amount of service. HMOs are at one end of the managed care spectrum while PPO and POS are at the other. PPO and POS are much closer to a standard indemnity plans in that you have the option to see whom you want when you want (though at added cost via copay or deductible). In a HMO plan you have to see someone who is the HMO network to get coverage. In a PPO plan you can see anyone but pay more (via a copay) for someone outside the network. HMO’s have gotten a bad rap because of the perception that medical care is doled out by non-medical people in order to cut costs. If done properly a HMO will pass those savings onto their customers with little loss in the quality of care.

In addition recent law changes have introduced an investment vehicle know as a HSA (Health Savings Account) which works like an IRA for Health Care. Contributions to the HSA (2650 limit for an individual) are tax deductibles like a standard deductible IRA while distributions for medical expenses are tax free like a Roth IRA. At 65 or in the event of disability, you can even treat the assets as if they were assets in standard IRA and take distributions as ordinary income (subject to taxes like an standard IRA). Combining a HSA and high deductible insurance plan makes a great deal sense especially for someone who’s young and in good health.

There are many points to consider when choosing a plan. Which doctors you want to be able to see? How much are you willing to pay out of pocket? How easy it to see a specialist?

The following commercial website has some good and more detailed information covering some of the topics I’ve touched on.

http://www.medhealthinsurance.com/

-Dong